Tuesday, November 30, 2010

There is now confirmation of the collaboration between the Chinese central government and organized crime groups in an attack a year ago on Google mail, which I had pointed to in January based on the technological outline of the criminal activity. (In yesterday’s New York Times: “a coordinated campaign of computer sabotage carried out by government operatives, private security experts and Internet outlaws recruited by the Chinese government.”) There are reports of separate collaborations between China and North Korea, a country that by now may be regarded as a failed state.

Countries under great stress cannot be relied on to act in an orderly fashion or in accordance with their self-interest. This fact is a threat to your personal security in matters as minor as e-mail passwords. It is one thing to discover that a criminal inside China has signed in to your e-mail account. It is quite another to realize that the perpetrator was no ordinary criminal, but was working for the Chinese central government. National governments are capable of levels of resourcefulness that an ordinary criminal organization could never generate. If they are starting to pay attention to us on an individual level, it is cause for concern.

This requires new thinking on security issues. Our computer networks are riddled with “back doors” intended to provide access to network administrators and national intelligence organizations. Previously, there was some concern at the actions large corporations such as Microsoft or Sun Microsystems might have taken using these mechanisms. This concern was somewhat misdirected. Any back door accessible to the National Security Agency or the Federal Bureau of Investigation is also available to countries like China and North Korea, and to the attorney general of Texas, for that matter.

Technology developed in the 1990s allows large corporations to send you, and tens of millions of other customers, marketing messages as if they knew who you were. The same technology also allows any organization that has a criminal bent to spy on tens of millions of people. These organizations can include national governments. It no longer serves us to pretend that this is not going on “yet.” We saw it last winter. It has now been confirmed.

Monday, November 29, 2010

Tom DeLay is guilty in his political money-laundering scheme. This story came out late Wednesday while much of the country was traveling or getting ready for Thanskgiving. The conviction is significant because it shows that people who ignore their legal responsibilities when handling other people’s money can go to jail, even if the money in question is political money. In other words, politics does not serve as a blanket license to lie, cheat, and steal.

Most political corruption cases involve bad decisions at the periphery of an officeholder’s work. You look at them and say, “What were they thinking?” Not so with DeLay. The actions he was convicted of go right to the heart of his political career. When DeLay set up a shell organization to transfer corporate money to political candidates in 2002, it was a necessary step toward his becoming the House majority leader one year later, in 2003. It was then that the K Street Project, which DeLay also was involved in creating, became a multi-billion-dollar political corruption machine for the Republican Party, turning uncounted Republican officeholders into multi-millionaires. Looking at it through this lens, it is fair to say that moving vast sums of money around in order to corrupt the political process was the whole purpose of DeLay’s political career.

The long delay in reaching the conviction — this is a 2010 conviction for actions taken in 2002, in a criminal pattern that started who knows how many years earlier — means that it won’t serve as much of a deterrent for today’s political criminals. With the White House taking a look-the-other-way approach to crime in Washington, and Congress, the political parties, and the news media treating political crime as a sort of game, it’s hard for politicos to understand that there are specific rules that have to be followed when other people’s money is involved. When you can get away with something year after year, you tend to start to think of it as legitimate. DeLay himself does not yet understand that he did something wrong, and his lawyers hint that they may be able to persuade the Supreme Court to overturn the political money laundering laws. With the Supreme Court itself involved in the political money laundering game, in a fishy decision earlier this year, that is not a preposterous thought. Put it all together, and it is not nearly enough to persuade people in Washington that the corrupt money games have to stop.

Sunday, November 28, 2010

With November drawing to a close, this month could match the record low Arctic ice extent for November. The slow fall growth of the ice cover is happening this year despite relatively normal weather conditions across the Arctic.

It is the relatively warm temperatures of the ocean waters that are making it hard for ice to form. I wrote previously about the warm surface water temperatures recorded this year in the southern Arctic Ocean, especially in coastal areas. Scientists have also made an effort this year to record sea bottom temperatures, especially in the shallow coastal waters near glaciers. The bottom waters have, in some places, been just as warm as the surface waters. This is the most definite indication so far that the whole ocean is warming up. The ocean is warming in part because, with less ice cover, it takes on more sunlight.

The ocean may be taking on heat from the surrounding land, which is also warming. The most definite indication of global warming is the shrinking permafrost, especially in Siberia. Scientists may argue about the accuracy of thermometers and statistics, but it doesn’t take any instruments to see permafrost melt. Scientists in Siberia say the melting is accelerating and much of Siberia may look like another planet within about 25 years because of the geological effects created by the melting ice in the ground. When the ice melts, it creates narrow valleys a few meters wide. As this happens, roads there are becoming impassable and will need to be rebuilt. The melting ice takes away heat from the surrounding air, cooling it, so after most of the permafrost melts, Arctic temperatures are likely to increase faster.

Saturday, November 27, 2010

I’ve heard Black Friday stories from several states, and they all seem to agree that there was a high level of activity. That also fits with what I saw of retail parking lots in my local area, where shoppers started to arrive in numbers more than two hours before midnight. A high level of activity doesn’t automatically translate into a high sales total, but I also haven’t anything to suggest that shoppers were being unusually picky.

What I saw today, though, suggests that the Black Friday shopping frenzy is over. Traffic was almost back to normal at most of the retail parking lots. The exception was the shopping malls, which remained busy, if not hectic.

The only places where traffic seemed surprisingly light were the toy stores and consumer electronics stores. In both categories, I suspect the reason is that Christmas shoppers had already made their purchases online.

Friday, November 26, 2010

Ireland, two days ago, showed the world a 4-year austerity plan, which includes unprecedented cuts in government services, a boost in income taxes (about 2 percent higher) and property taxes (said to be about €200 per house), and a cut in the minimum wage. And after all that, international observers say it is probably not enough.

Ireland got to this point because of its decision to keep its banks standing two years ago. That commitment has turned out to be more costly than anyone planned on at that time, so now the government has to conserve its cash to prove that it will be able to meet its other obligations.

The Irish government has spent more than $100 billion on its giant banks so far, and it may all have been for nothing. The austerity budget, necessary only because of the bank bailout, is a worse blow to the economy than the failure of the banks would have been. Worse, the banks may have to be wound down in the end anyway. According to reports, the government has started looking for buyers for some of the banks it now owns, a move that was not part of its original plan, but so far, there are no interested buyers.

Thursday, November 25, 2010

When I look at the state of the economy, the first thing that strikes me is how easily it could be much worse than it is. I mean that. That the United States is not locked in a depression right now speaks volumes about the resilience and perseverance of most of the people. Consider what might have happened:

One year ago, we could have seen the worst flu outbreak ever, with a tenth of the U.S. population too sick to work. But the summer flu outbreak never made it to late fall or winter, mainly because so many people were diligent about simple things like washing their hands.

Unemployment could be double what it is if millions of people weren’t going to extraordinary lengths to find new jobs for themselves, or to keep the businesses where they work from going under.

Somehow, in the middle of everything else that’s going on, people have found ways to reduce energy use to an unprecedented extent. As a result, energy went from being more than half of U.S. imports to less than half, reducing the immediate financial pressure on the country.

What makes this all the more impressive is that all this effort is coming at a time when Americans are more pessimistic about economic matters than they have been in my lifetime. When times are tough and everyone seems to feel discouraged, you usually can expect people to scale back their efforts — to not try quite so hard. Instead, it’s easy to see that Americans are working harder than ever, and that is what is keeping the economy going.

Today on Thanksgiving, I want to say thanks to everyone who kept going when things seemed bleak or the work kept getting harder; to everyone who said, “I’ll just have to do it myself,” when they couldn’t pay to have something done; to everyone who stepped outside their personal comfort zones to take a hard look at their spending habits and put their financial houses in order. As a result of all of our extra efforts, here we are. Thank you.

Wednesday, November 24, 2010

I am baking pies this morning — and I know many other people who will be cooking something special over the course of the day, for the Thanksgiving holiday tomorrow. Then, a much bigger cooking effort will be underway starting tomorrow morning. People who never use their kitchens on any other day of the year will be cooking for hours. These two days are probably the biggest two-day period of cooking of the year (and then, of course, the following day is the biggest day for leftovers). There are plenty of food-related holidays in the United States, as elsewhere, but the belated harvest festival of Thanksgiving is the one where the do-it-yourself tradition seems to have held on the longest.

It is easy to overlook the value of all this holiday DIY. A single cook can create, in half a day, several hundred dollars worth of food, based on the price you would pay for similar hot food in a commercial establishment. Economic statistics don’t include DIY in any form, but if they did, they would show a surge of activity every Thanskgiving. And for people like me who might grumble at times at the effort we’re putting in, it is easier to accept the effort that a holiday like Thanksgiving takes if you recognize the value of what you’re creating.

Tuesday, November 23, 2010

Today’s housing statistics from the National Association of Realtors showed a decline in October in both the number of existing houses sold and the average price. Sales declined 2.2 from the previous month, seasonally adjusted. They were down 25.9 percent when compared to the previous year.

Part of what’s going on is that people are being more cautious in “moving up” to a bigger or better house. This includes people selling condos to buy single-family houses. It has always been a better financial strategy to pay off the mortgage on a home before selling it to buy a more expensive one. It appears that more households are taking that approach now, and not moving as soon as they can qualify for a larger mortgage. One indication of this in the National Association of Realtors report is the rate of all-cash sales, the home purchases that don’t involve loans. All-cash sales were 29 percent, the same as September, but a higher rate than we‘ve seen in recent years.

Monday, November 22, 2010

I’m working on a new song for the season. A new holiday song. I’m calling it “I Wish It Could Be Black Friday Every Day.”

I am inspired by retailers’ increasingly bold efforts to expand the observance of Black Friday, the unofficially designated U.S. shopping day that falls every year on the day after Thanksgiving. And this is no mere “Pre-Black Friday Savings,” or “Cyber Monday,” the attempt by online sellers to get people to do all their shopping online on the following Monday, or “Black Friday II”, the Friday a week later where retailers gamely attempt to sell the merchandise left over from the real Black Friday.

No, the new approach is for retailers to declare day after day of Black Friday. At Barnes & Noble, “It’s Black Friday Week!” according to the note they sent me this morning. Some people think of this week as Thanksgiving week, which makes a certain kind of sense, but a “Friday week” of any kind or color raises deep philosophical questions about the nature of reality, questions such as, “What day is it, really?” and “How do you know?”

Retailers are still smarting from the brutal beating they took in 2008. Smart retailers have learned from their lesson. Instead of waiting for Black Friday, retailers are aggressively promoting merchandise, services, box sets, and the holiday season starting November 1st.

Another Forbes writer, though, is not so sure a 54-day “Black Month” benefits retailers:

Since when is slashing prices to the bottom considered a “strategy?”

Most U.S. Walmart stores will be open Thursday, on Thanksgiving, for people who want to spend an official holiday shopping, perhaps to avoid the Friday crowds. Then, some of its Black Friday specials start at midnight Thursday night. Walmart can do this. It knows many of its workers need the extra money. It is harder to explain how Sears can be open on Thanksgiving morning, except that it has to keep up with Walmart, not to mention KMart, which has traditionally been open for Thanksgiving Day shoppers. Toys “R” Us, which seems to be pulling out all the stops to remain relevant this year, is beating the midnight openings of some Black Friday sales by opening two hours earlier, at 10 p.m. Thanksgiving Day. Most stores are closed on Thanksgiving, though, which helps to explain why it has become the busiest selling day of the year on the Internet.

The crowds may not be as big on the real Black Friday this year, with the day being spread out over a week or a month. It is not really that retailers are pushing shoppers to shop earlier. It was the shoppers who moved the Christmas season into November about three years ago, perhaps mainly because there is so little time for shopping once the holidays actually arrive, and partly to avoid the crowds. The retailers are just trying to outdo each other in keeping up with the shoppers.

But if the Christmas shopping season is getting spread out, it is also getting thinner. People can’t really spend an eighth of the year shopping for a single holiday. And although people in surveys have said they expect to spend more on Christmas this year, my prediction is that most will find ways to spend less.

In the end, it isn’t possible for every day to be Black Friday. People aren’t economically or emotionally equipped for day after day of frenetic shopping, and shopping ultimately isn’t important enough to displace the winter holidays that people are nominally shopping for. Christmas itself will continue to be a celebration in its own right, and New Year’s Eve will be a optimistic observance of the passage of time, whether or not people can find the time to go shopping beforehand.

Sunday, November 21, 2010

The major international financial events in Europe tend to happen on the weekends, and the Ireland bailout is no exception. After talks that started Thursday, the Irish government is expected to draft a formal application for European aid tonight.

The aid comes as Ireland is looking for a financial backstop for its guarantee of its banks’ deposits. The government has already put $60 billion into stabilizing its banks, and revelations of new troubles came yesterday as Allied Irish Banks said it had lost $18 billion in business deposits this year, not quite a run on the bank, but a sign of loss of confidence that could turn into a run.

Ireland is also expected to undertake a four-year austerity plan, cutting government spending to match its tax revenues.

The situation in Ireland is rightly causing some concern about what could happen to other countries, including the United States. Ireland, like the United States, saw its economy grow top-heavy as real estate values went up and there was an excess of construction. The abrupt halt in this flurry of activity left its banks vulnerable.

The United States doesn’t face the same national risks from a run on its largest banks, however. Current U.S. law would direct the government to liquidate a giant bank if it should get into the kind of trouble that several of the largest Irish banks are in, and there would be a considerable advantage to the rest of the U.S. economy in that sequence of events. International financiers, therefore, cannot threaten the U.S. economy with an overseas run on the banks.

The risk in the United States, though, is not entirely different. If international investors begin to pull their money out of U.S. government securities, that works almost the same way as a run on a bank. And the United States, but for its size, is about five months away from being as financially vulnerable as Ireland was at the start of last week.

Saturday, November 20, 2010

It has been nearly two years since I stopped buying milk to drink. I had been drinking a gallon of milk every week or two. At first, I cut back as the price of milk went up. Then, I phased milk out completely by drinking my last half gallon slowly. I was motivated by both health and financial considerations. Besides the trace amounts of yucky things found in commercial milk, each gallon contains 128 grams, more than a quarter of a pound, of fat, and cost me around $4, a high price to pay for what is essentially junk food. In a year, I imagined, I would save more than $100, and I could lose 7 pounds — just by giving up milk.

In did, in fact, lose 7 pounds, not in a year, but in a few weeks. And since then, I’ve lost 7 pounds per year. It is not just the milk, but the food I used to eat with milk: cookies, cake, donuts, breakfast cereal, and so on. I didn’t specifically give up any kind of food, but I probably cut back by about half on my starchy dessert foods. In dietary terms, that adjustment is probably just as important as the milk itself.

I tried the various kinds of milk made from beans and grains: soy milk, rice milk, and about five other kinds. They all struck me as being the same kind of heavily processed junk food that dairy milk is, and they are even more expensive. Coconut milk seemed an improvement over dairy milk in both price and nutrition, but I wanted to go for a bigger improvement than replacing one kind of milk with another. I replaced milk mostly with water, and sometimes with pineapple juice. It surprised me at the time that pineapple juice cost so much less than milk. It surprised me also that breakfast cereals went better, in a culinary sense, with pineapple juice than with milk. The combination of milk and cereal that had seemed like a fact of nature turned out to be just a marketing concept.

In two years I’ve saved about $200 from not drinking milk. I may have saved more than that by making less frequent trips to the supermarket. Without the milk habit, there isn’t any reason to keep going back to the supermarket week after week. I would guess I have made at least 20 fewer supermarket trips in the last two years because of not needing to buy milk. The savings in transportation costs alone is about $50, and I might have saved another $150 by buying fewer groceries.

These are small changes, but they add up. At the same time, if half of my weight loss during this period was the result of giving up milk, that alone is reason enough.

Friday, November 19, 2010

Wells Fargo will pay Citigroup $100 million to settle lawsuits surrounding the acquisition of Wachovia when it was on the brink of collapse in 2008. Citigroup had agreed to purchase parts of Wachovia with FDIC assistance, but a day later, Wells Fargo stepped in and bought Wachovia whole. It is somewhat strange that Wells Fargo is paying Citigroup any money to settle the case, considering that Citibank surely would have imploded financially if the deal had gone through. Even without the added weight of Wachovia, Citibank required a massive government bailout before 2008 was over.

A European debt crisis team is looking at Ireland’s banks. The worry is that the banks, and perhaps the country, are in much worse financial condition than what they’ve been saying. The main danger in this kind of investigation is that it could create the impression of a country in financial free-fall even though no major problems are present, as previously happened in Greece, and this is what seems to be happening in Ireland. The situation in Ireland is important to watch, because if bond-market speculators succeed in bringing down Ireland, it will suggest that they can take on any country with sovereign debt much larger than its annual GDP. If so, the United States could be on their list by early next year.

Foreclosure fraud lawsuits are being filed in large numbers now, and the giant banks also face an investigation by the state attorney generals and a cautionary note from the TARP Congressional Oversight Panel. The foreclosure error problem is so vast that there is no quick way out for the banks involved. It may be another year before the full scope of the mortgage processing problems can be measured.

The Fed is ordering new stress tests for the largest U.S. banks. Early indications are that the new stress tests will be every bit as forgiving as the previous ones.

The Wall Street Journal reported this week that at least 50 criminal investigations are underway in connection with recent U.S. bank failures. Probably less than half of these will turn out to have any substance, but still, if criminals are identified and prosecuted, it may serve as a deterrent to criminal-minded bank executives in the future.

Pennsylvania has had its share of banks in distress as a result of the economic factors at work on the banking industry, and that turned into a bank failure tonight. In Bala Cynwyd, just across the street from Philadelphia, state regulators closed Allegiance Bank. The failed bank had $92 million in deposits at 5 branch offices, one in Philadelphia and the rest in its inner suburbs. It took losses in commercial mortgages, with $6 million in non-performing commercial mortgage loans as of September 30. The problem loans were made mainly in 2007 and 2008. The bank lost $4 million in 2009 from the liquidation of a real estate lending portfolio it had funded. The bank had reported losses of $13 million in the last two years.

VIST Bank, the banking operation of a Wyomissing, Pennsylvania, mortgage company, paid a 0.5 percent for the deposits and is also purchasing the assets. The acquisition allows VIST Bank to expand its territory toward Philadelphia.

In Wisconsin, state regulators closed the 17 locations of First Banking Center. It had $665 million in deposits. First Michigan Bank is paying a 0.5 percent premium for the deposits and is also purchasing the assets. First Michigan Bank previously operated only in Michigan. It says it plans to keep all of its 17 new Wisconsin locations, and it will keep the First Banking Center name in Wisconsin.

First Banking Center was founded in 1920. It had seen its stock decline from a peak of $96 in 2006 to less than $1 in August of this year. The bank lost money on commercial real estate loans and real estate development loans, including a loss of about $8 million in the bankruptcy of a Milwaukee-area condo developer last month. The Fed had issued a prompt corrective action order in August giving the bank until October to raise capital.

State regulators in Florida closed Gulf State Community Bank, which had five offices in the Apalachicola area in the Florida panhandle. It had $112 million in deposits and a slightly smaller amount in assets. The deposits and assets were transferred to Arkansas-based Centennial Bank.

So far this year, 149 banks have failed in the United States. The pace of bank failures has been slightly faster than last year.

Thursday, November 18, 2010

General Motors Co., the new General Motors, started trading on the stock exchanges today. It’s officially a startup company now. General Motors is not the typical startup — by at least one measure, its initial public offering was the largest ever — but it nevertheless faces most of the same challenges that any startup has to overcome.

The biggest thing General Motors has going for it: it can bypass the one big hurdle of any completely new business. With famous brand names like Chevrolet and GMC, it won’t have to struggle just to get the world’s attention.

Yet General Motors is going to work in a stale industry. These days, people buy cars for the same reason they buy vacuum cleaners and appointment books — because they have to. This tends to favor products that are sleek, competent, and inexpensive. That’s a tall order, and to make it an even bigger challenge, General Motors will have to keep up with any other startup that comes along.

Wednesday, November 17, 2010

Health care costs too much. It’s more than 16 percent of all the spending in the United States. But what does that really mean? Think of it this way. If you are an average worker, you’ll work about one hour today to cover your share of the costs to operate the health care system. And not just today, but every day. One hour a day, seven hours a week, just to pay for health care.

To understand how excessive this is, imagine that we could do away with the health care system entirely. This could never happen, of course, but if we could collectively spend that one hour per day on living healthier lives, doing things like exercising, cleaning, and cooking, instead of paying for the current health care system, that would make a bigger difference than the health care system does. People would, on average, live healthier, more productive lives and live longer with improved lifestyles than with health care. Without the burden of the health care system, we could actually be healthier.

The right answer, of course, is not to do away with the health care system, but to cut it down to a fraction of its current size — to cut health care costs so that they are similar to what they were in the late 1970s, to reduce the scale of the health care system so that it employs not one in seven workers, but about one in 25.

This, of course, will not happen with the health care system working the way it is. Many things will have to change in the technology, administration, and regulation of health care for the cost of health care to fall by just 10 percent. But at least people are starting to realize that we can’t wait for the health care system to change. The health care costs we pay are the livelihood of the people who work in the health care system and the profits of the people who own it. It will have to be people outside the system, health care consumers, who get the first changes going.

It makes sense, then, that people are looking to books such as the new Brandi Funk book Cut Your Health Care Costs Now to find ways to personally spend less money on the health care system. This personal cost-cutting is just the beginning. The bigger changes will come when people have more personal knowledge about health and illness, and can take steps to avoid illnesses with simple daily actions that cost almost nothing.

Compare the cost of washing your hands to the cost of treating the flu in the hospital, and you’ll see what I mean. Washing your hands several times a day costs almost nothing, yet it’s the most reliable way to avoid the flu that science knows about at this point. Last year, with the H1N1 flu scare, people were more careful about washing their hands, and the result was the mildest flu season in recent memory. You wouldn’t know it from watching the news, but fewer people than usual got sick with the flu, and fewer people went to the hospital, and this was mainly, scientists think, because people were doing simple things like washing their hands. These are the kinds of changes that will eventually result in lower health care bills for everyone.

Tuesday, November 16, 2010

The little Whos down in Who-town were singing a song.
They were drumming, and strumming, and humming along.
On Telegraph Hill, though, the Grinch stood and frowned.
“They should not be so loud! Oh, the noise! Oh, the sound!”

The Grinch covered his ears, and he sat, and he thought,
“They should not be so loud! No, they really should not!”
Then he thought that he might put a stop to the noise
If he took away all of their Happy Meal toys.

It was not food, you see, that made a Happy Meal fun.
The sandwich was just scraps of beast on a bun,
And the rest of the meal was salt, sugar, and fat.
The little Whos could hardly be happy with that.
No, the Happy Meal came in a box with a toy.
That was the part that they seemed to enjoy.

“With no toys,” said the Grinch, “they will not sing and shout.
I must go down to Who-town and take the toys out.”

So down the hill the Grinch slithered and slunk
He would find the toys and pack them away in his trunk.
As he crept through the arches, a thought crossed his mind.
He wondered what kind of toy he would find.
Would it be a toy soldier, a dragon, a princess?
Instead, he found boxes of English musicians.
A singer named Roger, a guitarist named Pete,
He packed them all up and made his way down the street.
Then the Grinch dragged the trunk up to Telegraph Hill,
When he heard a sound that made him stand still.

By now, the little Whos should be sitting in tears.
Instead, why, the Grinch heard shouting and cheers.
But what could this mean? Could it be that the small
Whos were happy for no reason at all?

Then something strange happened. The Grinch turned around
And he vowed to take the toys back to Who-town,
But the Whos would not take them, even if he said please,
And he found himself talking to Mayor McCheese.
The mayor said all the Whos had decided that
They should not mix toys with salt, sugar, and fat.

So the Grinch dragged the unwanted toys to the square,
And he thought, and he sat, and he sat and thought there.
What would become of his trunk full of toys?
And what would he do about the Who girls and boys?

Darkness was falling across the Who-tower,
And the Who-bells clanged another Who-hour.

Then suddenly, who should appear on the scene?
Little Cindy-Lou Who, who was not quite thirteen.
She looked at the Grinch, and she said with a cry,
“Why did you take all the toys away? Why?”

“Toys!” said the Grinch, and he jumped to his feet.
“That’s a singer named Roger, a guitarist named Pete.
They are under a spell, and they cannot be heard
Till someone brings them to life by saying just the right word.”

“But who?” Cindy said. Then they both were surprised
When they heard a tap and a call from inside.
“Let me out!” said a voice from the trunk, “Let me out!”
Cindy lifted the lid. A musician crawled out.

And then came another. And another again.
And two more. And five. And by twenty and ten.
And an army of Rogers and axe-wielding Petes
Laid waste to Who-town’s houses and streets.
The little Whos shouted and cheered at the sight
As the show went on late into the night.

And there stood the Grinch at the back of the crowd.
“Oh, the sound! Oh, the noise! They should not be so loud!”
And the moral of the story is, quite simply, that
You should not mix toys with salt, sugar, and fat.

Apologies to Dr. Seuss, McDonald’s, San Francisco, The Who, and Rod Temperton

Monday, November 15, 2010

Facebook’s new messaging platform, announced today, may be mostly copied from MySpace, but it is still another significant step in the decline of Internet e-mail.

The problem with Internet e-mail is that it can be sent anonymously or with a false identity. You can’t really rely on information from Internet e-mail messages unless you can verify them through a more secure medium, such as a web site or telephone call.

The messages sent inside Facebook (or MySpace, for that matter) don’t travel through the open Internet, so they can’t be falsified so easily. You can count on the message originating from the account it says it comes from.

There is potential for confusion, though, because Facebook e-mail messages may arrive in the same inbox as Internet e-mail messages. Even though they may appear on the same list, it’s important to remember that the outside messages contain risks that aren’t there in the inside messages.

Now that Facebook users can send e-mail messages to each other within Facebook, there will be fewer personal messages being sent through Internet e-mail. This move may cement Internet e-mail’s status as a commercial, rather than a personal, communications medium.

Sunday, November 14, 2010

The Christmas shoppers are back. In the stores, the Christmas season is on. It’s on like Donkey Kong (I had to add that because that’s one of the revamped products people are out shopping for). I know this is true because of the increased weekend vehicular traffic I’ve been seeing in shopping areas. This suggests that retailers can count on another “early” Christmas season, in which Black Friday is the midpoint of the season. Many shoppers will be finishing their Christmas gift shopping on that day — or online on Thanksgiving, a pattern that began to emerge last year — while others will just be getting started at that point.

The early gift shopping defies the usual American commercial thinking. “You’ll miss all the sales!” If this thought is not a deterrent to early shoppers, it may be because:

There just isn’t enough time in December, the busiest month of the year, to do a lot of shopping.

When you go shopping during a big sale, you might end up spending more rather than less.

Either of these thoughts indicate that consumers are starting to chart their own course, no longer taking their cues from commercial interests.

On the other hand, retailers this year are trying to adapt to the early Christmas shopping by spreading their major one-day sales around the month of November, instead of concentrating them all on Thanksgiving weekend. Any shopping strategy will miss out on something. But it makes sense that retailers have to follow the shoppers, many of whom just don’t have much shopping time in December, and that’s why there are more “Christmas” sales in November this year.

Friday, November 12, 2010

Nationwide Insurance, which was burned by mortgage-backed securities in 2008, has decided it can reduce its mortgage-related risks by relying less on the securities market and doing more mortgage lending of its own. It might seem like a strange time for a financial company to be making a move in the U.S. mortgage market, but a lender with good underwriting that can find gaps in the market can do well.

Tonight in Georgia, state regulators closed Darby Bank & Trust Co. of Vidalia, Georgia. The failed bank had $588 million in deposits at seven locations. The deposits were transferred to Ameris Bank, which is also purchasing the assets.

Darby Bank had been operating since 1927. As of September, more than a third of its real estate loans were facing some kind of distress.

Separately, in Tifton, Georgia, Tifton Banking Co. failed and its $142 million in deposits were also acquired by Ameris Bank. Tifton Banking Co. had the bad luck of opening for business in 2004, just as the Georgia economy was starting to decline.

Across the country, in the Phoenix, Arizona, area, state regulators closed Copper Star Bank. Minnesota-based Stearns Bank paid a 1 percent premium for the $190 million in deposits and is also purchasing the assets.

Thursday, November 11, 2010

There was a surprising notice yesterday from Campbell Soup Co.: Its fall advertising for soup wasn’t enough to increase sales. Sales fell 1 percent in spite of an unusually broad advertising campaign from Campbell.

To be fair, it would be hard to boost sales for canned soup over the levels of the last two years, when consumers cutting back on their restaurant spending turned to canned soup and fast food to fill the gap. By this year, people were starting to get tired of Big Macs and ham and bean soup — and perhaps realizing that these shortcuts weren’t a substitute for real food.

The long-term trend for Campbell has been inexorably downward as consumers look for healthier food, a trend that a soup factory cannot easily participate in.

But this latest downward tick in Campbell sales came as a surprise, and suggests structural changes in consumer spending. For example, it may be a sign that consumer advertising is not as effective as it used to be. It may also be that consumers are starting to view canned soup, or at least Campbell’s soup, as a luxury item, something they cannot afford to buy regularly.

Wednesday, November 10, 2010

I have heard from some people who voted in last week’s U.S. elections that they had hoped their vote would slow the pace of change that the country is experiencing. There are similar reports in the news media. To the extent that this is the reason for people’s votes, it is a miscalculation.

The government is not the source of changes that are affecting the world right now, but it is trying to manage those changes. Selecting officials who will ignore or resist the changes that are on the way will not stop the changes from taking place. Similarly, choosing legislators who disagree with each other may paralyze the government, but it will not stop the world from turning. It is like eliminating the hurricane forecasting office (a cost-cutting measure that is actually being considered) and hoping that this will result in a smaller number of hurricanes. The winds of changes will not slow down, but when they hit, people might not be prepared.

Already, government, business, and organized religion stand united in trying to slow the pace of change. This institutional resistance to change can’t stop change from happening, but it can push it outside the institutional framework — out of the towers and onto the streets.

The big issue that people talk about is health care. People want to slow down the “rush” to extend access to health care to more people, but in the meantime, the health care delivery system is collapsing, with more and more people every day not able to get routine medical care. But the result will not be that people just give up and die from their illnesses. They will discover or invent some form of health care — but it will not come from doctors. The results of this are far less predictable than if the evolution of medical care were happening within the formal health care system — and without any institutional constraints, much more rapid change is possible.

When the world changes and institutions do not, the institutions get pushed to the sidelines. Then, changes cannot be coordinated, something that Alvin and Heidi Toffler warned about in Revolutionary Wealth. If there is no institutional power to keep the changes that happen in one area in sync with changes that are happening in another area, then changes will happen when people aren’t ready for them.

We are already seeing this, of course. Uncoordinated changes are happening all over the place because of weak or marginalized institutions.

Consumers are moving away from milk, in part because of its high price, at the same time that governments (in countries around the world) are encouraging dairy farmers to produce more milk than ever. The result is a massive oversupply of milk, and the largest cheese inventory in U.S. history, while dairy farmers fall into poverty.

Some government authorities are trying to encourage the construction industry in the hope that this will lead to an improved economy. At the same time, other government officials are changing the rules of home financing so that fewer people can borrow money for a house, and social norms are also moving away from these financial arrangements. The result is a housing market that is out of sync, with lots of homes being built and no one to buy them.

Government efforts to clamp down on the content of television programs over the last seven years have coincided with a decline in the television audience, and an increase in Internet video.

Two of the United States’ largest automakers went bankrupt trying to build more SUVs faster at a time when drivers were cutting back on their vehicle purchases and switching to much smaller vehicles.

Lifestyle changes are happening on a massive scale and, in many cases, going almost unnoticed. The world is drinking less beer, for example, but we can’t really say why. Eventually, these changes will bubble up to the level where they topple large institutions. Nothing will stop this from happening; it is hard enough to predict where and how fast these changes will occur.

Tuesday, November 9, 2010

Ambac, previously the second largest bond insurer, filed for bankruptcy late yesterday. Although there is a chance the company could emerge from bankruptcy, its bankrupt status is another indication that the old Wall Street will not be coming back.

Ambac’s willingness to insure mortgage-backed securities made it easier for Wall Street financial companies to pass those off as investments. But skeptics said all along that Ambac didn’t have the reserves to pay potential claims, and in the end, the skeptics were right. Investment funds that bought insurance from Ambac have already sued to keep the company from liquidating some of its assets, and those are issues that now will have to be addressed in bankruptcy court.

It is a certainty, though, that Ambac’s customers will take losses because of its financial collapse, and the size and distribution of those losses may not be determined for several years.

Monday, November 8, 2010

If you’ve been fantasizing about taking some time off to do something good for your community, you might be interested in the Sabbatical Contest that Ikea’s The Life Improvement Project is holding. Judges will select one winner of $100,000 for a project (or sabbatical) to benefit others, based on criteria that include passion, feasibility, and creativity. First, though, the contest has two key limitations:

The winner and project must be in the contiguous United States.

The deadline to enter is today.

It’s a useful exercise to think about what you might do with extended time off from your regular work or a substantial sum of money. More often than you might expect, people do tend to think of projects that would benefit the world around them in some way.

Sunday, November 7, 2010

Time is an illusion, and some of the simplest evidence for this is daylight time. In the United States, we adjusted our clocks last night, and this morning, there is more sunlight than yesterday morning. The sun rose an hour earlier, giving us more useful daylight hours — when compared to the clock, that is.

In reality, we know that the clock is nothing more than a very steady electronic or mechanical device. It tells us whatever we want it to tell us. The actual planetary rotation, or the movement of the sun across the sky, isn’t affected in the slightest by the way we set our clocks. So the appearance of more daylight this morning is an illusion.

Yet it is an economic significant illusion, with very small but measurable increases in economic production as a result of the gimmick of daylight time. In total, the gains from daylight time are less than the extra effort people put in adjusting the clocks, an effort that takes about two hours per year or about 0.1 percent of all the work that’s done in the country over the course of the year. The economic gains are real nonetheless, and large enough to be seen on a graph and debated by experts and policymakers.

It should be noted, however, that the gains are not really the result of the inherent virtue of daylight time. Daylight time itself is unproductive. The gains result only from forcing everyone to work an extra two hours per year. These gains would be greater if these two hours were spent on people’s usual work, or something else that is actually productive.

The important lesson here is that gimmicks and other illusions have real economic power. This is true not just in the economy at large, but also in your individual life. If you can employ a gimmick that gets you to feel good about doing an extra two hours of productive work per year, you can boost your own productivity — and your economic prospects along with it — by 0.1 percent. Employ several such gimmicks, and it’s like getting a raise.

Gimmicks work because they help you focus differently, or because they change your energy. This is especially obvious with the new year’s resolutions that help many people concentrate their energy and focus on solving a specific problem. Gimmicks might seem inconsequential, but they are big enough to matter. Often we struggle with or fight over economic distinctions of 1 percent or less. If a gimmick can help us gain that 1 percent without a struggle, so much the better.

Saturday, November 6, 2010

World oil prices are going up just on the idea that the Fed’s latest money-boosting tricks will lead to inflation. If inflation actually occurs, oil prices will go up more. You may have noticed gasoline prices going up about 7 percent in the last two weeks. This is not the result of oil companies trying to influence the election, but speculators betting that the U.S. dollar will fall, anticipating the Fed move before it was officially announced. As long as the United States is the largest oil importer, its money will have an inverse relationship to oil.

But the declining dollar and increasing prices for energy make it more important to reduce our national dependence on imported energy. Energy is the biggest of category of imports in the United States, sometimes exceeding all other imports combined, and the United States is running a persistent trade deficit, importing too much compared to the amount of money we have available to spend. The trade deficit is the main reason the U.S. economy is chronically out of balance. The U.S. economy won’t be right until the trade deficit is smaller. The declining U.S. dollar, though, will tend to make the trade deficit larger.

To counter this, we need to find more ways to use less energy. Replacing the old CRT televisions with flat screens was the right idea. The new trend of replacing light bulbs with LED light bulbs will have a similar effect. There must be other ways in which we can do what we’re doing without importing so much energy.

Friday, November 5, 2010

Wilmington Trust posted a quarterly loss of $370 million, mostly from sagging commercial real estate in the bank-heavy Wilmington, Delaware, metro area. It may have found an answer, though, in a deal to be acquired in a stock swap by M&T bank. Wilmington Trust shareholders will get approximately 2 M&T shares for every 39 shares they hold. The deal will move M&T into the top 20 in the United States in size of deposits, with 800 branches, including some in Ontario. The deal is subject to regulatory approval and won’t close until next year.

Separately, Allied Irish Bank, which owns a 22 percent stake in M&T, is considering selling its shares. It may need the cash to avoid a takeover by the Irish government.

The divided Congress that follows from this week’s U.S. elections virtually eliminates any chance of further bank rescues. Even if the whole banking system were facing a sudden difficulty, it is hard to imagine that the House Republicans could agree among themselves, or with Democrats, on any quick fix for the problem. This creates possibly the best opportunity for shrinking the size of the banking system, if some of the giant banks sell assets and close operations to avoid financial collapse. To date, the largest banks have only grown larger, in spite of their financial woes.

Tonight’s bank failures started with K Bank, which had $500 million in deposits and 7 locations, mostly in Baltimore County, Maryland. It was one of the larger banks in the county, and the largest bank to fail in Maryland in the current run of bank failures. It was founded in 1961 and was known as Key Bank prior to 2004. It had been reporting losses since 2008 as its commercial loans steadily deteriorated.

M&T bank is acquiring the deposits and assets. It will be keeping the former K Bank branch offices open for just one week.

Three small state-chartered banks, each with a single location, failed on the West Coast.

Western Commercial Bank, Woodland Hills, California, with $101 million in deposits. First California Bank paid a 0.5 percent premium for the deposits and is also acquiring the assets.

First Vietnamese American Bank, Westminster, California, with $47 million in deposits. Local bank Grandpoint Bank is acquiring the deposits and assets.

Pierce Commercial Bank, with $194 million in deposits and one location in Tacoma, Washington. Heritage Bank paid a 1 percent premium for the deposits and is also acquiring the assets.

A week ago, also in Washington State, The Union Credit Union was closed by state regulators. It had $12 million in assets and 3,000 members. The NCUA transferred the member accounts to two other credit unions.

Thursday, November 4, 2010

Two new measures in San Francisco are meant to reduce restaurants’ contributions to health problems.

A smoking ban at restaurants now extends to outdoor seating areas. This measure was approved in March and went into effect November 1. It makes sense in San Francisco, where virtually any outdoor seating area is going to be immediately adjacent to at least one building.

The “Happy Meal ban” enacted yesterday bans toys in children’s restaurant meals that are more than 35 percent fat. This is not a difficult threshold to meet. A normal meal is 10 to 30 percent fat, so restaurants can still bribe kids with toys to sell them high-fat food, as long as they stay reasonably close to the idea of healthy food. McDonald’s Happy Meal, though, falls conspicuously outside the new San Francisco rules, and so far, McDonald’s has only said that it disagrees with the nutritional science that the new rule is based on. The “Happy Meal ban” takes effect December 1.

Wednesday, November 3, 2010

Desperate times call for desperate measures. I’ve been poring over exit polls and other recent polls and analysis, and it’s fair to say that the old political axiom, “All politics is local,” didn’t apply yesterday. Voters were mostly thinking of national issues. If the Democrats saw large losses, it’s largely because voters weren’t happy with the Democrats’ response, or lack of response, to the economy. The Democrats’ measured approach to economic matters, trying to dole out favors to big-money interests according to someone’s idea of a fair proportion in order to push the economy forward, has struck voters as more casual than desperate.

This does not mean that voters have confidence in the Republicans. You have to be desperate to pick out a group of people who are old, fat, rich, and comfortable and ask them to shake things up. Voters felt that there was nowhere else to turn, but realistically, they are not hoping for much.

(That survey was taken in the last two days, just before and during the election.)

If Republicans aren’t gloating as much you would expect, it may be because they are already worried about the federal budget. I am sure no one really expects the House Republicans to “work to balance the budget,” as many of them promised during the campaign, but they will have to rein in their deficit-happy tendencies. It would be an embarrassment to deliver a budget that is obviously dysfunctional, like the PowerPoint-on-paper “budget plan” the Republicans introduced last year, and a different kind of embarrassment to just rubber-stamp the White House budget proposal, but it will be politically impossible for the Republicans to agree among themselves on any spending cuts, so they are forced to work with some Democrats to deliver a budget.

Exit polls hint at an electorate still fuming over the Wall Street bailout — another point that defies traditional political wisdom. Voters supposedly have short memories, but more than two years later, they remembered to vote out some of the deal-makers behind that disastrous legislation.

In comparing the polls to the election results, we have learned that there is a systematic problem in political polling. Depending on the polling approach, the polls lean Republican by 2 to 7 points, which is quite large in political terms. This is why the huge Republican sweep that all the major media were predicting didn’t materialize — the predictions were based on polls with an inherent bias. This polling divergence would be higher in a presidential election or any other election with higher voter participation.

The problem with political polling is that it selects polling subjects based on wireline (or land-line) telephone service, which is declining rapidly, and more rapidly among voters under 40, Democrats, and liberals than among voters over 60, Republicans, and conservatives. This gives all political polls an inherent conservative Republican bias that will only get worse as wireline telephone service declines further. Pollsters will, I am certain, continue to look for ways around the decline in wireline, but it may very well be a problem we will have to live with for the foreseeable future.

Money by itself is not enough to buy an election. In California, two failed corporate executives spent a fortune trying to buy their way into political office — officially $162 million in the U.S. Senate race. The money did get voters to take the candidates seriously, and that’s nothing to sneeze at, but it apparently didn’t go much farther than that. Nationally, the Republicans surely got some advantage from the roughly $75 billion spent on their behalf by businesses (unofficially; official figure are much lower) but the effect was not as great as you might have imagined.

Monday, November 1, 2010

Disillusioned voters. That’s the conventional picture you’ll get from the mass media to explain why voter participation is as low as it is. Voter turnout is recorded as a percent of registered voters, but the real measure is the percent of eligible voters, and it is an extraordinary occurrence when 50 percent of eligible voters cast ballots.

Voter turnout goes up when political rhetoric turns more hopeful, down when it is more fearful, but that is not the main reason voters stay home. The bigger issue is rarely mentioned because it isn’t so colorful. People don’t necessarily have the energy, or the basic vitality, to get out and vote. It’s the same problem that has people losing their car keys and buying fast food instead of cooking. One of the great challenges in economics is to find ways to improve people’s vitality in general. With more vitality, people take more action and do better work. If voter participation started to trend upward, it would be a sign that we are making progress in terms of action and vitality in general.